As results disappoint again, McDonald's blames economy, talks McRib

McDonald’s Corp. underperformed yet again, reporting profit levels Friday below what Wall Street had anticipated along with sliding sales this month.

Net income was down 3.5% to $1.45 billion, or $1.43 a share, in the third quarter ended Sept. 30. A year earlier, the chain pulled in $1.5 billion, or $1.45 a share. In the previous quarter, profit slid 4.5% -- a rare decline.

Revenue in the third quarter was down slightly, 0.2%, to $7.2 billion. A comparison of same-store sales, which cancel out the volatility of opening and closing restaurants, showed a 1.9% increase. So far this month, however, the gauge is down, executives said.

In midday trading in New York on Friday, McDonald's stock was down 3.8%, or $3.53, to $89.33 a share.

Sure, it’s a tough economy. Consumers aren’t spending like they used to. Competition -- from reinvigorated fast food outlets and popular fast casual brands -- is thick.

McDonald’s said as much Friday while announcing its earnings, blaming “global economic, operating and competitive challenges.” But the chain also happens to be one of a rare cadre of restaurant companies that managed to thrive during the recession while rivals such as Burger King and Taco Bell were forced to cut back and revamp.

So what’s causing the Golden Arches to droop now? Possibly the same issues currently bedeviling Chipotle, another steady stock market player recently going through a rough patch.

Both chains have grown strongly in recent years, raising analyst concerns about maintaining the momentum. Both are encountering more competition in a crowded market -- Chipotle from Taco Bell and McDonald’s from so-called better burger chains such as Five Guys and Smashburger.

Don Thompson, McDonald’s new chief executive, said in a conference call with analysts that part of the pressure is due to the company’s investments in technology and its Olympic sponsorship. But he also pointed to stress from “the external environment including declining consumer sentiment, high commodity and labor costs and heightened competitive activity.”

“When the economic crisis began in 2008, few people thought the environment would still be as uncertain and fragile as it is today,” Thompson said. “It is clear, however, that this operating environment is the new norm.”

McDonald’s hopes to boost interest this season with new premium items such as the cheddar bacon onion sandwich this month and the return of the cult favorite McRib sandwich in December.


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